With several underwriters declining to quote war risk premiums for ships trapped in Ukraine, the market shows signs of overheating, driving owners who face an already difficult situation further into despair.
Since 24 February — the day Russia invaded its neighbour and ship traffic in effect came to a halt across the Black Sea — war insurance charges for vessels blocked in the area soared to giddying heights.
According to an insurance broker’s note seen by TradeWinds and dated 1 March, the rates — calculated as a percentage of ships’ estimated value and renewable every seven days — have climbed from 0.025% to between 2% and 5%.
Two shipping sources with vessels in the area contacted by TradeWinds on 4 March said quoted rates have risen even further, reaching up to 7%.
“Some people have obviously smelled blood and [are] trying to take advantage of the situation,” one owner said.
Some owners may soon have to pay up to $600,000 to insure their ships for a single week.
“This is really predatory, but you have no choice. Either you do it or you remain without cover,” the owner said. “At these rates, if you’re forced to stay there for five weeks, you lose the ship”.
War risk underwriters told TradeWinds they are currently quoting rates between 1% and 4% of hull value, depending on the risk.
Usually war risk cover is automatically reinstated at a higher rate after a seven-day period following the identification of a new additional premium area.
However, there appear to have been numerous cases of underwriters either not renewing terms, or offering excessive rates.
Julian Clark, global senior partner at maritime law firm Ince, said there is a question mark over whether underwriters have a legal obligation to renew: “What we have seen is that a number of underwriters have said there are no additional terms, leaving the ship without cover. The question is, can you do that?”
At least five ships have so far been attacked in the area. Some suffered slight damage but others more serious damage, and one small general cargo ship sank. One seafarer was killed and others were injured.
Feeling raw
“Unfortunately, it’s a nightmare with the war risk premia,” a manager with a vessel in the region told TradeWinds.
“Last week we were asked to pay 5% for three days!”
He added that he felt “very lucky” to finally obtain 2%.
Sentiment in shipping circles is particularly raw because owners feel they are left holding the bag for a situation totally outside their control or responsibility.
“Ships that admirably stayed put to fulfil their obligations under their charterparties ... are now at the mercy of rockets, mines and insurers without scruples,” a third source added.
Owners wanting to bargain down the rates are often confronted with demands they find questionable, such as transferring their entire fleet’s war risk cover.
According to the broker’s note, some insurers have taken advantage of the reinstatement wording within the notice clause, altering other conditions.
“Amendments have included moving blocking and trapping to 24 months — from six or 12 months — along with excluding protection and indemnity and insuring only 50% of the hull limit,” the note said.
At the basis of the market upheaval is the refusal by several underwriters to quote, given the escalation of events.
This is particularly acute with US-backed underwriters, who are very sensitive about legal issues and refuse to touch any ship in the Black Sea, in Ukraine or Russia, for fear of inadvertently violating sanctions.
“Very few underwriters are willing to insure vessels whilst in Ukraine,” said a fourth source at a big shipping company with vessels in the region.
